Walmart CFO John David Rainey, a longtime workout enthusiast and dedicated runner, admits that the demands of being a financial wizard at the world’s largest retailer have taken a toll on his fitness habits. is recognized.
But he still manages to get the required number of reps.
“I think if you’re balanced and active, you bring a better version of yourself to work,” Rainey tells me inside the new Walton Family Whole Health & Fitness in Bentonville, Ark. spoke.
Rainey has overseen Walmart’s financial statements since June 2022, making a statement in itself as the company won the Yahoo Finance Company of the Year award. He was a major free agent signing from Walmart and an outsider who later served as CFO of PayPal. (PYPL) and United Airlines (UAL).
Since Rainey joined Walmart on June 6, 2022, the company’s stock has risen a blistering 124%, compared to a 47% rise in the S&P 500 index. The company increased sales by billions of dollars, expanded operating margins in a highly competitive retail environment, and returned to profitability. The story of the bull of Wall Street.
The company beat Wall Street expectations for sales and profits, driven by a 5.3% like-for-like sales increase at Walmart US. Global e-commerce sales rose a whopping 27% as Walmart again raised its full-year outlook.
The company’s full-year sales are expected to grow in the range of 4.8% to 5.1%. The midpoint of the earnings estimate, $2.45 per share, represents an 11% increase from the year-ago period.
In an exclusive interview with Yahoo Finance, Rainey talked about his journey as CFO and Walmart’s future with the cover retracted. This conversation has been edited for length and clarity.
Yahoo Finance: A look at the core of Walmart’s business.
John David Rainey: In many ways, it’s humbling because it’s like running a lot of different companies. We’re obviously the largest food distributor in the world, but we’re also one of the largest gas stations in the world and one of the largest pharmacies in the world. We are in the financial services business and it is very important to think about how you spend your time because you can get lost in any area.
It’s more at the corporate level, things like capital and resource allocation. I spent a lot of time with the investor community because I think at one point our story didn’t reach Wall Street. As with the path we’ve taken, the progress we’ve made hasn’t been appreciated as much.
Why do you think your stock price is at an all-time high?
The more I learned about Walmart and beyond, the more I felt like they had all the tools. They’ve made every investment to really be successful here. And, let’s be clear, we’re going to thrive on the digital journey with more brick-and-mortar stores. And what Walmart already had was a great brand and hundreds of millions of customers who shop there every week. And it’s just that customers can now shop the way they want, through digital channels.
When you joined PayPal from CFO, you were an outside director. Was it difficult to get used to a culture where so many people promote from within?
I’m probably the first CFO hired from outside the company in over 20 years. And when I first started, I had a lot of eyes on me and I was like, who is this new guy?
But Doug (McMillon) didn’t hire me to be a retail expert. There are people who work for me, but I don’t know as much about retail as they do. My job was to support strategy, support what we were doing from a corporate perspective, and support financial operations. And the culture here has really accepted me.
How did being the CFO of United Airlines and PayPal prepare you for this job at Walmart?
Helping lead a fast-growing digital business like PayPal and combining both of those experiences is a great fit for Walmart. I remember going on a trip to Hawaii with my family once on United. We were seated in first class and were served food and given 18 different pieces of silverware for the duration of the flight. And then we landed. Of course, jet fuel is one of the biggest expenses. I think this is crazy. What if we provide four pieces of silverware? How much will we save on fuel? Because it weighed, wow, just the silverware, a million dollars a year for just one flight. So you can see how thin the profit margins were in that business.
Then move from that environment to PayPal. PayPal grew more than 20% in one year, had margins of more than 20%, added hundreds of millions of customers, and brought both perspectives to Walmart.
Is it hard to find cost savings in a company like Walmart, which is known for being extremely efficient?
We have a culture that is routinely referred to as low cost. And we do this to provide our customers with low prices every day. But like any other company, we have opportunities. We can look at sourcing opportunities, buy things like cardboard and paperboard, and leverage our scale to get better pricing. Like any company, we have our inefficiencies, but this is the path we need to take. We have talked publicly about achieving our goal of 20% selling, general and administrative expenses as a percentage of sales. We’re not there yet, but all teams are working on this, so we’re hopeful that we’ll get there eventually.
What changed in Walmart’s business this year that allowed it to achieve higher sales and profits than last year?
It didn’t happen by chance. It’s no coincidence that almost 20% of our business is e-commerce. It’s no coincidence that we’re growing our share, and that share primarily comes from households with annual incomes of $100,000 or more. It’s no coincidence that last year we delivered over 4 billion items on the same or next day. This is part of our strategy. And what you’re seeing now is that all the pieces of this strategy are starting to come together in a way that will increase operating income by an average of about 10% every year from this year to next.
Will this kind of growth rate continue?
As the economy becomes more difficult for consumers, I even wonder if we are somehow alone, as people look to us for value. We are a company that offers everyday low prices. But what’s different now is that we’re also known for convenience. Therefore, I believe that our company can win in any economic environment.
What we’re doing now is growing in these digital channels and opening up new revenue streams. Advertising, fulfillment services, data monetization, anything that has a high profit margin. So the core retail business is growing in GDP and has low profit margins, but all the other businesses are growing at 20%, 30%, 40% a year, much more. We boast high profit margins.
Does Wall Street understand it now?
In fact, I think we’ve seen this reversal in the last quarter, maybe two quarters. Perhaps the best evidence of this is our P/E (price-to-earnings) multiple. Currently, it has increased from about 22 times to more than 30 times. To me, the P/E multiple is a function of growth and certainty.
Is the e-commerce business profitable?
Sam is making money today. We have a revenue generating international segment. Walmart US is getting really close. But this is not what I’m worried about. It’s no longer a question of if, but when.
There are several factors behind this. One is that we’re talking about network densification. If you deliver a package to one house on the street instead of five houses on the street, you’re spreading the cost over a larger amount.
The other thing we’re seeing is that consumers are actually willing to pay for expedited shipping. What we’re seeing is that 30% of customers are ordering from one of our stores and someone is willing to pay for expedited delivery within an hour or within three hours. .
Why do you think it’s gaining market share among high-income shoppers?
Nowadays, it is being recognized as more convenient for customers. This is attractive to all households, regardless of your salary or monthly income. And convenience really matters. Everyone wants that immediacy when ordering something. And we got even better there.
Should President-elect Donald Trump introduce tariffs in 2025? Will they hurt Walmart’s progress?
We don’t want them because we want to offer low prices to our customers. But we have been living in a tariff environment for seven years now. Although we work with our suppliers to lower prices through our unique private label assortment, tariffs will be inflationary for our customers.
How can you keep prices low in a tariff environment?
One of the things we’ve focused on for years is diversifying our supply chain, no matter which company or country. It’s good to have a reliable supply. You need to find out where the customs duties apply and what their percentages are. However, we often consider sourcing something from another region where tariffs don’t apply.
Are you investing a lot of money in artificial intelligence?
There are many back-office type routine tasks that can be automated. We’ll do some of that today. But aside from AI, we believe that investing in technology is very important to us and fundamentally different from many of our other customers. The point I want to make regarding technology is what we actually do at Sam’s Club.
I’m sure you’re familiar with Scan and Go. Pass under this exit arch to exit without passing through the cash register. What’s interesting about this is that customers who use Scan and Go have a Net Promoter Score of 90.
Finally, what should investors expect from Walmart in 2025 from a growth perspective?
Our digital business, if you look at the future projections for the next three to five years, I think most of our growth will come from digital. That’s where most of our operating income, or growth, comes from. Looking at the year-on-year increase in operating income in the most recent quarter, more than half of the increase was due to member revenue and advertising revenue.
Learn more about Yahoo Finance’s 2024 Business of the Year Awards.
Click here for all the latest retail stock news and events to help you with your investment strategy
Read the latest financial and business news from Yahoo Finance
